Budget cliffhanger: talks drag into final hours

The White House and congressional leaders worked overtime Sunday to ward off tax increases set to kick in for most Americans, with Republican leaders signaling a grudging acceptance that some taxes will go up and the two parties narrowing their differences over who should pay more.

After a mid-day stumble, the two sides worked in private, debating a slimmed-down package that would increase taxes for top wage earners – perhaps hitting incomes somewhere between $360,000 and $450,000 - while preserving income taxes breaks for tens of millions of other Americans.

“There is still significant distance between the two sides, but negotiations continue,” Senate Majority Leader Harry Reid, D-Nev., said on the Senate floor following a closed door meeting with fellow Democrats. “There’s still time left to reach an agreement, and we intend to continue negotiations.”

The Senate and House scrapped plans to cast votes Sunday night. They will return Monday, the last possible day to vote before all of the Bush-era tax cuts expire at the end of the day.

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The signs of progress late Sunday came after a day of drama in which talks appeared to hit an impasse, Reid suggested he could not get the White House to sign off on a counter-offer, and Senate Minority Leader Mitch McConnell, R-Ky., made an open appeal to old Senate colleague Joe Biden, now the vice president, to help get talks moving again.

The talks between Reid and McConnell had broken down early Sunday over a Republican proposal to curb the growth of benefits under entitlement programs such as Social Security and Medicare. Unable to get a response from Reid, McConnell turned to Biden, who helped broker deals over tax cuts in 2010 and the debt ceiling in 2011. Biden and McConnell spoke more than three times by phone Sunday, aides said. Republicans eventually dropped their proposal for entitlement changes as part of this potential deal.

Unless Congress acts, the country faces a one-two dose of automatic tax increases and spending cuts, affecting nearly every taxpayer and many government programs. The tax increases would come as all of the Bush era tax cuts expire at 12:01 am Tuesday. The across-the-board spending cuts kick in days later, part of a doomsday package Congress enacted thinking – falsely – that it would force members to enact more carefully designed cuts.

Democrats proposed extending only those Bush era tax cuts on individual income below $200,000 and family income below $250,000, raising taxes on income above that. Republicans had been pushing to extend all of the tax cuts.

But late Sunday afternoon, Republicans offered to sign off on raising taxes on individuals earning more than $450,000 while Democrats countered with $360,000, several senators said.

Other issues being considered as part of a possible package included extending unemployment benefits for 2 million Americans, preventing about 30 million Americans from having to pay the alternative minimum tax, keeping Medicare payments to doctors at the current rate and extending tax breaks offered to companies and individuals, according to a congressional aide familiar with the talks but not authorized to speak publicly.

The two sides also continued to debate the estate tax. Democrats want to raise the tax from 35 percent to 45 percent and apply it to estates above $3.5 million, rather than the current $5.2 million. Republicans want current rates to prevail.

The overall package being discussed would not halt $109 billion in federal government spending cuts set to start after Jan. 1, or extend a 2 percentage point cut in the payroll tax, set to expire with the Bush tax cuts. It also would not increase the government’s debt limit.

Any agreement would still face significant hurdles with conservatives in the Senate and House ands approval Monday was far from certain.

“President Obama and Majority Leader Reid continue to insist on new taxes that will be used to fund more new spending, not for meaningful deficit reduction,” said Sen. Jeff Sessions, R-Ala. “The result is nearly $9 trillion in new debt accumulation over the next decade, which represents virtually no change from current projections.”

Reid and McConnell hit an impasse Sunday after Republicans pressed anew for a way to control spending with a new method for calculating benefit increases for programs such as Social Security and Medicare, Democratic sources familiar with the negotiations said. The change would save $200 billion over 10 years.

At mid-day, McConnell said he was still waiting for a response from Reid and the Democrats to his Saturday night proposal.

“I’m concerned about the lack of urgency here,” McConnell said Sunday afternoon. “There’s far too much at stake for political gamesmanship...I’m willing to get this done but I need a dance partner.”

Reid said that Democrats were trying to come up with a counteroffer, but were unable to do so even after several conversations with Obama.

“At this stage we’re not able to make a counteroffer,” he said. “In the meantime, I will continue to try to come up with something, but at this stage I don’t have a counteroffer to make,”’ Reid said. “Perhaps as the day wears on, I will be able to. I will say this, I think that the Republican leader has shown some absolutely good faith. It’s just that we are apart on some pretty big issues.”

Obama took to the airwaves in a rare Sunday morning TV appearance to lambast Republicans for letting the crisis reach the final days.

“We have been talking to the Republicans ever since the election was over. They have had trouble saying yes to a number of repeated offers,” Obama said on NBC’s Meet the Press. “What’s been holding us back is the dysfunction here in Washington.”

Republicans criticized Obama for his partisan remarks as the two parties were still trying to work out a deal.

“Americans elected President Obama to lead, not cast blame,” Boehner said in a statement. “The president’s comments today are ironic, as a recurring theme of our negotiations was his unwillingness to agree to anything that would require him to stand up to his own party.”

McConnell spokesman Don Stewart called the comments “ discordant” and noted that as Obama made them, McConnell “was in the office working to bring Republicans and Democrats together on a solution.”